On Productivity: concepts and measurement

Staff research note

This note by Jenny Gordon, Shiji Zhao, Paul Gretton was released on 25 February 2015.

To economists, productivity is the efficiency with which firms, organisations, industry, and the economy as a whole, convert inputs (labour, capital, and raw materials) into output. Productivity grows when output grows faster than inputs, which makes the existing inputs more productively efficient.

Productivity does not reflect how much we value the outputs - it only measures how efficiently we use our resources to produce them. Putting aside the problem of ensuring we produce what people want to consume, productivity growth is a good way of improving living standards.

How can firms and the economy more generally produce more with less? Moreover, are the productivity statistics a good guide to how well we are doing on this front?. This note aims to shed light on these two issues.